session 6, small business

8/14/2019 Session 6, Small Business

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SessionSession

66Small Business,Small Business,

Entrepreneurship & FranchisingEntrepreneurship & Franchising


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Kevin PlankKevin Plank was a football player. He hated how his cottonwas a football player. He hated how his cotton

shirts felt when becoming wet. So a paid his tailor to stitchshirts felt when becoming wet. So a paid his tailor to stitch

some tees of moisture-wicking fabric using to producesome tees of moisture-wicking fabric using to produce

cycling pants, calling it cycling pants, calling it Under ArmourUnder Armour. Today he is a. Today he is a

multi-billionairemulti-billionaire


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Chapter OutlineChap

ter Outline

The Nature of Entrepreneurship &The Nature of Entrepreneurship &Small BusinessSmall Business

Advantages of Small BusinessAdvantages of Small Business

Disadvantages of Small BusinessDisadvantages of Small BusinessStarting a Small BusinessStarting a Small BusinessThe Future of Small BusinessThe Future of Small Business

Making Big Businesses act SMALLMaking Big Businesses act SMALL


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Entrepreneurship & SmallEntrepreneurship & Small

BusinessBusiness EntrepreneurshipEntrepreneurshipThe process of creating and managing aThe process of creating and managing a

business to achieve a desired objectivebusiness to achieve a desired objective

Small BusinessSmall BusinessAny independently owned and operatedAny independently owned and operated

business that is not dominant in itsbusiness that is not dominant in its

competitive area and employs fewer thancompetitive area and employs fewer than

500 people500 people


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Non-Financial Reasons To Start ANon-Financial Reasons To Start ABusinessBusiness

9%

7%

41%

21%

13%

9%

Do Something ILove

More Flexibility

Be Key DecisionMaker

Change Lifestyle

Spend More Time

With FamilyDon't Know or NotStated

Source: CIBC World Markets, Economics & Strategy, Secrets to Small Business Success,research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf


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Facts about Small Business inFacts about Small Business inUSAUSA


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Need ForNeed ForSmall BusinessesSmall Businesses

Job CreationJob Creation

InnovationInnovation

Products/ServicesProducts/ServicesProcessesProcesses

Important To Big BusinessImportant To Big Business

Did You Know? 9.1 million9.1 million women-owned businesses employ 27.527.5

millionmillion and contribute 3.6 trillion3.6 trillion to the economy. 3.25 million3.25 million minority-owned firms employ 4 million4 million

and account for$495 billion$495 billion in revenues


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Industries that attract SmallIndustries that attract SmallBusinessBusiness

Retailing andRetailing and

WholesalingWholesaling

ServicesServices

ManufacturingManufacturing

High TechnologyHigh Technology

Did You Know?3939 percent of high-tech jobs are insmall businesses


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Small Business Impact BySmall Business Impact ByIndustryIndustry


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Advantages of Owning a SmallAdvantages of Owning a SmallBusinessBusiness

PersonalPersonal IndependenceIndependence

Freedom of choiceFreedom of choice

The option of working at homeThe option of working at home

BusinessBusinessOften requires less money to start and maintainOften requires less money to start and maintain

FlexibilityFlexibility

The ability to focus on a few key customersThe ability to focus on a few key customersThe chance to develop a reputation for qualityThe chance to develop a reputation for qualityand serviceand service

Did You Know?12%12% of Internet start-ups were launched in a

garage.


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Reasons For SuccessReasons For Success

Hard Work, DriveHard Work, Drive

& Dedication& Dedication

Demand For Product/ServiceDemand For Product/Service

Managerial CompetenceManagerial Competence

LuckLuck


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Traits needed to Succeed inTraits needed to Succeed in

EntrepreneurshipEntrepreneurship NeuroticismNeuroticismHelps entrepreneurs focus onHelps entrepreneurs focus on

detailsdetails

ExtroversionExtroversionFacilitates network buildingFacilitates network building ConscientiousnessConscientiousnessFacilitates planningFacilitates planning

AgreeablenessAgreeablenessFacilitates networkingFacilitates networking

Openness to new ideasOpenness to new ideas


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EntrepreneursEntrepreneurs

Yesterday Today

Self-Reliant Open-Minded

Male Male or Female

Quick Decisions Relies On Others


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Disadvantages of SmallDisadvantages of Small

Business OwnershipBusiness Ownership

High stress levelHigh stress level

High failure rateHigh failure rate

UndercapitalizationUndercapitalization

Managerial inexperience orManagerial inexperience or

incompetenceincompetence

Inability to cope with growthInability to cope with growth


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How Hard do They Work?How Hard do They Work?

Hours worked by small business owners

Source: 21st Annual Small Business Survey Summary Report, Dun & Bradstreet(n.d.),

www.sbs.dnb.com/survey/2002survey.pdf (accessed October 30, 2006).


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Common Mistakes made byCommon Mistakes made by

Start-up BusinessesStart-up Businesses1.1. Failing to spend enough time researching the businessFailing to spend enough time researching the business

idea to see if its viableidea to see if its viable

2.2. Miscalculating market size, timing, ease of entry, andMiscalculating market size, timing, ease of entry, and

potential market sharepotential market share

3.3. Underestimating financial requirements and timingUnderestimating financial requirements and timing4.4. Overprotecting sales volume and timingOverprotecting sales volume and timing

5.5. Making cost projections that are too lowMaking cost projections that are too low

6.6. Hiring too many people and spending too much on officesHiring too many people and spending too much on offices

and facilitiesand facilities

7.7. Lacking a contingency plan for a shortfall in expectationsLacking a contingency plan for a shortfall in expectations

8.8. Bringing in unnecessary partnersBringing in unnecessary partners


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Common Mistakes made byCommon Mistakes made by

Start-up BusinessesStart-up Businesses9.9. Focusing too much on sales volume and company sizeFocusing too much on sales volume and company size

rather than profitrather than profit

10.10. Hiring for convenience rather than skill requirements.Hiring for convenience rather than skill requirements.

11.11. Neglecting to manage the entire company as a whole.Neglecting to manage the entire company as a whole.

12.12. Accepting that its not possible too easily rather thanAccepting that its not possible too easily rather than

finding a way.finding a way.13.13. Seeking confirmation of your actions rather than seekingSeeking confirmation of your actions rather than seeking

the truth.the truth.

14.14. Lacking simplicity in your vision.Lacking simplicity in your vision.

15.15. Lacking clarity of your long-term aim and businessLacking clarity of your long-term aim and business

purpose.purpose.16.16. Lacking focus and identity.Lacking focus and identity.

17.17. Lacking an exit strategy.Lacking an exit strategy.


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Reasons For FailureReasons For Failure

3%

15%

32%

15%12%

12%

11%

Poor FinancialManagement

Incompetence orInexperience

Bad EconomicConditions

Poor Books orRecords

MarketingProblems

Staff or UnionProblems

Did Not UseExternal Advice

Source: The Coleman Chronicles, Vol. 1 Issue 20, The Most Common Reasons for Small Business Failurehttp://www.coleman.bc.ca/publications/chronicles/vol1issue20.htm


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Start/OperateStart/OperateSmall BusinessSmall Business

BusinessBusiness

PlanPlan

Start FromStart From

Scratch?Scratch?

FinancingFinancing

BuyingBuying

Existing?Existing?


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The Keys to starting aThe Keys to starting aSmall Business SuccessSmall Business Success

A comprehensive

business plan The right form of

ownership

Adequate financing


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Business PlanBusiness Plan

Summarizes StrategySummarizes Strategy

IdentifiesIdentifiesImplementationImplementation

Includes:Includes:Goals and ObjectivesGoals and Objectives

Sales ForecastSales Forecast


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Business Plan- ProjectedBusiness Plan- ProjectedFinancial StatementsFinancial Statements

Cash Budget -Cash Budget -Most ImportantMost Important

Income StatementIncome Statement

Balance SheetsBalance Sheets BreakevenBreakeven


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Financial ResourcesFinancial Resources

Equity FinancingEquity Financing

Owners fundsOwners funds

VentureVenture

capitalistscapitalists

Debt FinancingDebt FinancingLoans &Loans &

collateralcollateral

Lines of creditLines of credit

Trade creditsTrade credits

BarterBarter


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Thrift

3%

Unknown

2%

Family &

Friends

3%

Leasing

17%

Fin. Co.

9%

Commerical

Bank

48%

Other

8%Owner Loan

10%

Share of Outstanding Debt for SmallShare of Outstanding Debt for SmallFirms By Supplier of Credit 1998Firms By Supplier of Credit 1998

Source: Small Business Administration- Office of Advocacy, Financing Patterns of Small Firms: Findings from the 1998 Survey of SmallBusiness Finance Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
http://www.sba.gov/advo/stats/ssbf_98.pdfhttp://www.sba.gov/advo/stats/ssbf_98.pdf


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Percentage of Small BusinessPercentage of Small BusinessLoans From Commercial BanksLoans From Commercial Banks

Under

$100K

87%$250K-

$1M

6%

$100-

$249K

7%

Source: Small Business Administration- Office of Advocacy, Financing Patterns of Small Firms: Findings from the 1998 Survey of SmallBusiness Finance Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf
http://www.sba.gov/advo/stats/ssbf_98.pdfhttp://www.sba.gov/advo/stats/ssbf_98.pdf


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The Marketing & Communication Tools forThe Marketing & Communication Tools forSmall Business SuccessSmall Business Success

Online features that small and midsize businesses use or areinterested in using to have a competitive advantage:

60%

54%

27%

20%

19%

0% 10% 20% 30% 40% 50% 60% 70%

E-mail marketing

Business website appearance in search

engines

Online coupons

Pay-per-click advertising

Blogs explaining service/ product


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Franchise SystemFranchise System

Franchise:Franchise:A license to sell anothersA license to sell anothers

products or to useproducts or to useanothers name inanothers name in

business or bothbusiness or both Franchiser:Franchiser:The company that sells aThe company that sells a

franchisefranchise

Franchisee:Franchisee:The purchaser of aThe purchaser of a

franchisefranchise


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Franchise ContractFranchise Contract

Franchisor, IncFranchisor, Inc..

FranchiseeFranchisee

BrandedBranded

Product/ServiceProduct/Service

PerformancePerformanceMonitoringMonitoring

$$$$$$$$$$


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FranchisingFranchising

To FranchiseeTo Franchisee+BusinessBusiness

OwnershipOwnership

+Access To Mgmt.Access To Mgmt.SkillsSkills

+Low Failure RateLow Failure RateTo FranchiserTo Franchiser

+Rapid GrowthRapid GrowthUsing OtherUsing OtherPeoples MoneyPeoples Money

To FranchiseeTo Franchisee

- High start-up costsHigh start-up costs

- % Of Sales To% Of Sales ToFranchiserFranchiser

AdvantagesAdvantages DisadvantagesDisadvantages


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Developing Trends In SmallDeveloping Trends In SmallBusinessBusiness

Demographic TrendsDemographic TrendsBaby boomers & Echo boomersBaby boomers & Echo boomers

Technological TrendsTechnological Trends Increase in Internet usageIncrease in Internet usage

Major breakthroughs in technologyMajor breakthroughs in technology

Economic TrendsEconomic Trends

Economic turbulence creates economic threatsEconomic turbulence creates economic threatsand new opportunitiesand new opportunities


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Growth of E-CommerceGrowth of E-Commerce


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Making Big Businesses actMaking Big Businesses act

SMALLSMALL

More and more firms are emulatingMore and more firms are emulating

small businesses in an effort tosmall businesses in an effort to

improve their own bottom line byimprove their own bottom line by

DownsizingDownsizing

Making their operating units functionMaking their operating units function

more like independent small businessesmore like independent small businesses

IntrapreneursIntrapreneurs


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Business PlanBusiness Plan

session 6, small business

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